Tuesday, June 3, 2014

Gold and Silver charts: bottoms fall out

The following comments were made in a technical update two weeks ago on gold’s daily bar chart pattern: “Bulls will try to defend the support zone between 1260-1280. But for how long?”

It took exactly six trading sessions for gold’s price to close below the 1260 level on strong volumes. So, the downward breach of the support zone between 1260-1280 is confirmed, right? Technically, not yet. Why? Because the 3% ‘whipsaw’ rule means only a close below 1222 will confirm the breach.

Looks like gold’s price is trying to find a bottom at 1240, from where it may attempt a pullback towards the 1260-1280 zone. If the zone now turns into a resistance zone, which it should, then the pulback may be short-lived. Gold’s price is likely to drop all the way down to test the Dec 31 ‘13 low of 1180.

All three daily technical indicators are in their respective oversold zones, which increases the probability of a pullback towards the 1260 level. That would be a good opportunity to short.

On longer term weekly chart (not shown), all three weekly EMAs are moving down and gold’s price is trading below them in a bear market.

Silver Chart Pattern

Two weeks back, the following observation was made about the daily bar chart pattern of silver: “All three indicators have formed bullish patterns of rising tops and rising bottoms, which may lead to another attempt at a rally past the falling 50 day EMA.”

Silver’s price did climb above its falling 50 day EMA on intra-day basis (on May 22), but touched a lower top. It subsequently dropped on strong volumes and moved down below the 18.75 level – its previous low touched on Dec 31 ‘13. Silver’s price has closed exactly at 18.75, and may attempt to bounce up from here.

Technical indicators are looking bearish. MACD has crossed below its signal line in negative territory. RSI has dropped to the edge of its oversold zone. Slow stochastic is inside its oversold zone. Bears are likely to use every rise to sell.

On longer term weekly chart (not shown), all three weekly EMAs are sliding down and silver’s price is trading below them in a bear market.